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First Mover Advantage

The Myth of First Mover Advantage

In entrepreneurship there is a myth that if you are first to market you always win. Its called the firsts mover advantage. Prof Adam Grant in his book, Originals, reports on a classic study by Peter Golder and Gerard Tellis which compared the success of first mover (pioneers) and settlers. Settlers are companies which were slower to launch their product and who waited for pioneers to create the market. Their first finding was that pioneers had a  47% failure rate while settlers had only an 8% failure rate. This leads to the conclusion that : being original doesn’t require being first. It just means being different and better. Since the market is generally more focused and easily defined when settlers enter, they can focus on providing superior quality instead of defining the product or service. They bust this myth by identifying the following disadvantages of first movers:

  1. When originals rush to pioneer they are prone to overstep. For example one study showed that 75% of pioneers in a study of 3000 startups failed because of premature scaling of their business when the market was yet ready to support it.
  2. Settlers tend to be ore risk- averse while pioneers act out of intuition and take radical risks. So settlers tend to balance their portfolios of risk and reduce the risk of failure. They also wait for the right opportunity. They do not spend lots of money developing the market unlike the pioneers. In other words settlers are not recklessly ambitious but they enter the market cautiously.
  3. Settlers get the opportunity to improve the pioneers’ technology or service delivery model to make better products. The pioneers have to make all the mistakes themselves and at their own expense while settlers learn from the mistakes of pioneers.
  4. While pioneers often get stuck in their first offering settlers can observe the market changes and shifting consumer tastes and so adjust their offering accordingly. Obviously settlers can afford the luxury of waiting for the market to be ready.

This however should not be a wholesale discouragement of first mover advantages. Its just placing balance to the picture. Obviously if we all wait to be settlers then there will be no pioneers and nothing original would be created. First mover advantage seems to work best when patented technology is involved or when there are strong network effects (e.g the product becomes more valuable when there are a greater number of users like on social media). However the odds of failure if you are a pioneer are higher.

When the market is uncertain, unknown or underdeveloped, then its better to enter as  settler rather than a pioneer.

Wishing you the best. God bless as you push your entrepreneurial dream.